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Supply Chain Management of Heraeus Holding GmbH

Supply Chain Management of Heraeus Holding GmbH

Discuss Supply Chain Management of Heraeus Holding GmbH within the Elements Of Logistics forums, part of the PUBLISH / UPLOAD PROJECT OR DOWNLOAD REFERENCE PROJECT category; Heraeus Holding GmbH is a family-owned company whose principal activities are the processing of specialty metals, particularly platinum and associated ...

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Supply Chain Management of Heraeus Holding GmbH
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Netra Shetty
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Supply Chain Management of Heraeus Holding GmbH - January 10th, 2011

Heraeus Holding GmbH is a family-owned company whose principal activities are the processing of specialty metals, particularly platinum and associated metals; the production of industrial and scientific equipment; and the development of related technologies. The five operating divisions of Heraeus encompass a wide range of products and technologies, all of which have evolved from, and can ultimately be traced back to, the business with which the company began in the mid-19th century: the melting and processing of platinum.

1600s to Mid-1800s: A Family Business Taking a New Turn

The company's origins go back to the Einhorn-Apotheke (the Unicorn Pharmacy) at Hanau near Frankfurt, owned by the Heraeus family since 1660. The family had produced a series of chemists, pharmacists, and doctors, going back to Johannes Heraeus, a pharmacist who studied at Giessen and died in 1650. The pharmacy itself had passed from father to son for eight generations, when it was taken over by Wilhelm Carl Heraeus in 1851. At this time Germany's development into a major industrial nation had hardly begun; communications were improving and trade barriers between the separate German states were gradually being dismantled.

Wilhelm Carl Heraeus had studied pharmacy and chemistry in Göttingen. When he took over the business in Hanau, he continued with chemical experiments in the laboratory he had installed in the pharmacy, processing chemical products, especially iron preparations for medical purposes. The town of Hanau, however, had traditionally been a center for master goldsmiths and the jewelry industry, and this situation brought about a change of direction in the Heraeus family business.

The jewelers of Hanau at this time were using significant, and increasing, amounts of platinum. Waste material containing platinum from jewelry production was sent to the Heraeus laboratory, where the platinum was separated out. But no commercial melting process for platinum existed at the time. The metal has a very high melting point, around 2,000 degrees centigrade. Before the platinum waste could be reused, it had to be sent to London or Paris to be forged at white heat, an expensive and inconvenient process for the Hanau jewelers. Heraeus, who had worked with precious metals during his studies at Göttingen, knew that two French scientists had discovered a process by which platinum could be melted in an oxyhydrogen compressor. He applied himself to developing this process for industrial purposes. In 1856, he succeeded in melting two kilograms (kg) of platinum by this method.

Production at Heraeus was initially on a small scale. The bars of melted platinum, weighing around 2 kg, were sent to a master metalworker, who forged them into rods at the anvil. Some of the platinum was sold in this form, and some was processed into sheet metal in the pharmacy. Several people, including Heraeus himself, took part in the exhausting rolling process. The sheet platinum was then passed to the Hanau copper and goldsmiths for processing into tubes, dishes, and crucibles. At this stage the Heraeus pharmacy employed two pharmaceutical assistants and three or four other workers.

Sales grew rapidly, and in 1857, the company completed its first significant export order with the dispatch to New York of bars, sheet metal, and wire weighing 30 kg. A total of 59 kg of platinum was sold in 1859; 20 years later the total had risen to 400 kg, and by 1888 it had reached 1,000 kg. Russia was the almost exclusive source of platinum ore, supplying between a quarter and a third of its total yearly production to Hanau in the years before World War I. The customers of the platinum melting works were pharmacies and dentists, the jewelry industry, the chemicals industry, and later also the electro-technical industry, which used large quantities of platinum wire for electric light bulb production.

Wilhelm Carl Heraeus continued with his chemical experiments outside the platinum field, producing rare metals such as ruthenium as well as other chemical products. On January 1, 1889, he retired, handing over the management of the business--at this stage numbering eight employees--to his sons Wilhelm and Heinrich. The new managers faced problems of platinum supply. Russian platinum production could not keep pace with world demand, and the metal soon became an investment commodity, subject to large and unpredictable price fluctuations. Platinum was not always to be had in the necessary quantities, forcing the company to devote research efforts to platinum-saving processes, substitute materials, and alloys.

Innovation and Diversification in the Late 19th and Early 20th Centuries

After 1891 the company began to extend its sphere of activity beyond the manufacture of unfinished platinum products, taking up the production of the articles required by its customers. During the next five years, new workshops for the processing of platinum were built on the edges of Hanau; the workshops went into operation in 1896 with about 40 employees.

At the beginning of the 20th century, Heraeus's competitors in France and England derived much of their business from manufacturing large vessels for the chemicals industry, for the concentration of sulfuric acid. Initially Heraeus only carried out repairs on these vessels, but soon the company was able to patent its own version of the product, using a more highly resistant mixture of gold and platinum, which ousted the opposition and eventually dominated the market. Yet this product itself became obsolete with the development of a new process for manufacturing concentrated sulfuric acid. The quantities of used platinum that Heraeus acquired as a result formed a valuable reserve in the face of a world platinum shortage. Changes in the application of platinum were frequent over the years. As other, cheaper materials or technologies were found to replace platinum, Heraeus responded by finding new uses for its product.

By 1894 the annual turnover of Heraeus was equal to that of the melting works in London and in Paris. By the time of its 50th anniversary in 1901, the company had 64 employees, and before the outbreak of World War I, Heraeus had become the largest platinum melting business in the world, with sales surpassing the combined total of its competitors in England and in France. Sales to the United States were growing fast; in 1891, the brother-in-law of Wilhelm Heraeus, Charles Engelhard, had been appointed the company's representative in the United States and soon, cooperating with the works at Hanau, he had become the leading figure in the U.S. platinum industry.

During the years before World War I, the company developed a number of new activities drawing on its expertise in platinum manufacturing and alloying. These included aluminum welding; in the Paris Exhibition of 1900, Heraeus exhibited aluminum equipment for the chemicals industry produced by the hammer welding method. Gold color, used in the ceramics industry for decorative purposes and manufactured using the byproducts of platinum ore, was an important new product, developed in the 1890s. A ceramics division was established, developing heat-resistant gold, silver, platinum, matte gold, and luster colors. Platinum alloys also served as heat conductors in electrically heated equipment; in 1910 Heraeus produced its first resistance-heated furnaces. As cheaper alloys were developed, electrical furnaces and drying ovens could be produced in larger quantities to satisfy industrial demand.

The new ovens brought with them the requirement for exact temperature measurement, and improvements in the purity of the platinum produced by the company, as well as the development of quartz glass, paved the way for the resistance thermometer in 1906. This thermometer, invented in 1906 by Dr. Ernst Haagn, the manager of Heraeus's electrical heating division, consisted of a thin layer of platinum foil encased in quartz glass, and was able to measure temperatures between -200° and +700°. From this time onward, the development of electrical heating technology and temperature measurement equipment have progressed hand in hand.

The use of high temperatures linked quartz glass, another of the company's major products developed during this period, with platinum production techniques. In 1899 Dr. Richard Küch had succeeded in melting large quantities of rock crystal in the oxyhydrogen compressor, forming quartz glass. A number of qualities make quartz suited to all kinds of laboratory equipment: it lets through ultraviolet rays, has a high temperature resistance, can withstand sudden temperature changes, and is resistant to most acids. The company's quartz division was founded in 1901.

In 1904 the sunray lamp, made of mercury and quartz glass, was invented. It was initially used for lighting large spaces, such as streets and halls, until it was replaced by the more powerful metal-wire lamps. Küch had noticed that close proximity to the lamp caused burns to appear on his face and hands--an effect attributable to the ultraviolet light that penetrated the quartz glass. The healing effects of the lamp made it one of the company's most famous products.

A new use for platinum was created by the manufacture of artificial silks. Artificial silks and rayons were produced using platinum spinnerets, which Heraeus had supplied for experimental purposes in the first years of the century. The spinnerets were manufactured in significant numbers after 1910. Initially the holes in the spinnerets had to be bored outside the company; with the foundation of a new workshop in 1922, the company also carried out this part of the production process, establishing the manufacture of spinnerets on a large scale, and becoming a major supplier to the fast-growing artificial fiber industry.

Rapid Expansion in the War Years

During World War I, a shortage of Chile saltpeter threatened to bring the manufacture of gunpowder and explosives to a halt. This crisis was resolved through the adoption of the Haber-Bosch process of nitrogen production, which used fine-meshed platinum catalyst gauzes. Heraeus supplied the wire for these gauzes, which were woven outside the company. Around this time, Heraeus also developed the manufacture of osmium alloys for use in fountain pen nibs--a product that led the market at home and abroad in the 1920s.

Up to this point the company had enjoyed steady, uninterrupted growth. World War I and the years that followed brought a renewed crisis in platinum supply, however. Stocks had been used up, the Russian Revolution had stopped supplies from the Ural, and any available platinum was prohibitively expensive. This crisis dominated the company's situation, as the third generation of the Heraeus family took over the management of the business. The new directors were able to overcome these problems, however, and soon the path of expansion and product diversification was resumed. The workforce, which had numbered 400 at the outbreak of World War I, had grown to 650 by 1926.

Spinnerets continued to be an important product. Now they were produced in larger quantities, and to higher specifications, in gold-platinum and gold-palladium alloys. Tantalum, a hard, light-colored metal newly developed by the company, also was used for rayon spinnerets. The catalyst gauzes supplied for nitrogen production during the war had been woven outside the company; a weaving facility was established within the company, with improved looms allowing for the production of larger, seamless gauzes. The ortho-dental sector grew significantly and a separate subsidiary, Heraeus Edelmetalle GmbH, was established for this part of the business. The quartz glass division initially had been devoted almost entirely to the production of parts for sunray lamps; now the development of high-quality quartz glass, free from imperfections, opened up possibilities for its use in optical technology as well as for the production of laboratory equipment.

The refractory metals titanium, tantalum, niobium, and zirconium, like platinum, have high melting temperatures. During the 1930s, Heraeus developed the high-vacuum techniques necessary to melt these metals. High-vacuum vapor techniques also were devised by the company, allowing for thin-layer surface metal coatings. This technology enabled the company to produce mirrors with greater surface resistance and higher reflective potential than had hitherto been possible. Heraeus Vakuumschmelze, the division of the company responsible for high-vacuum melting technology, was founded in 1923. After the almost complete destruction of its works during World War II, Heraeus recovered rapidly, continuing to grow and expand its product range in the 1950s and beyond. At the time of its centenary in 1951 the company's workforce had reached nearly 1,000; by 1957 this number had increased to 3,000.

Internationalization: 1960s-80s

Expansion continued throughout the 1960s and 1970s, and in 1980 Heraeus had a total of 6,300 employees in Germany and abroad. Sales levels showed a similar pattern of strong growth during this period: from around DM 100 million in 1960, turnover had passed the DM 500 million mark by 1970 and had reached DM 2.4 billion by 1980.

As early as 1958 the company began to expand abroad, with the establishment of subsidiaries in France and Italy. By 1964 further foreign subsidiaries had been added in Switzerland and The Netherlands, and in 1969 the group acquired a number of laboratory equipment manufacturers. Product and technological development continued in the fields of medical and industrial lamps, catalysts, dental equipment, laboratory equipment, and temperature measurement technology. Arc and electron-beam furnaces were developed after 1950, and 1978 saw the introduction of new incubator technology.

The long tradition of steady growth at Heraeus continued in the 1980s, with an important shift of emphasis. To establish the group's access to all important world markets and thus ensure its long-term competitiveness, Heraeus concentrated increasingly on the internationalization of its activities. Between 1980 and 1989 the workforce grew from 6,300 to 9,300, and the proportion of employees based outside Germany rose from 11 percent to 28 percent. At the same time turnover nearly doubled, rising from DM 2.4 billion to DM 4.6 billion, with an increase in the share of overseas sales from 53 percent to 63 percent.

The gradual change in the company's profile was brought about both by organic growth and by acquisition. In 1980, Heraeus acquired Cermalloy, a U.S.-based producer of thick film and polymer pastes, from Plessey, and in 1982 the company acquired Pacific Platers Ltd., later renamed Heraeus Ltd., in Hong Kong. In 1983, work was begun on new plants at Kleinostheim in Germany, and in 1985 new quartz glass factories were built in Japan and the United States. Two major acquisitions were made in 1988. The group acquired Electro-Nite International N.V. of Belgium, a manufacturer of measurement systems for metal melts, with 1,000 employees worldwide and manufacturing subsidiaries in Belgium, France, Britain, the United States, Brazil, South Africa, and Japan. The same year saw the acquisition of the surgical lasers division of Cooper Laser-Sonics Inc. in the United States, one of the world's largest suppliers in its field. In 1988 to 1989, joint ventures were established in Sweden, producing catalytic converters for the automotive industry; in Singapore, manufacturing lead frames for integrated circuits; and in Japan, distributing dental products.

Reorganization in the 1990s

Important changes in group organization were made in the early 1990s. Heraeus Holding GmbH, a holding company providing strategic leadership for the different divisions of the company, was founded at the end of 1985. In effect from January 1, 1990, the group was restructured: five operating units were formed, to function independently under the general umbrella of Heraeus Holding. Heraeus Instruments GmbH was responsible for the equipment division, whose principal products were laboratory equipment, medical equipment, and equipment for climate simulation. This division accounted for 30 percent of the company's sales in 1989. The metals and chemicals division, headed by W.C. Heraeus GmbH, focused on the industrial uses of precious metals, with subsidiaries encompassing the refining of pure metals from ore and recycled sources, the manufacture of electronic components and other metal products, and the production of ceramic colors and precious metal preparations. This division accounted for 22 percent of 1989 sales. Group activities in the field of sensors were brought together in the Heraeus Electro-Nite division, consisting principally of the Electro-Nite group acquired in 1988. Products of the division accounting for 21 percent of company turnover in 1989 included temperature measurement and thermal analysis systems, especially for the steel industry. Heraeus Quarzglas GmbH was responsible for subsidiaries concerned with the various applications of quartz glass, in the fields of semiconductor technology and fiber optics, as well as for optical components. This division represented 17 percent of the company's sales in 1989. Finally, the company's traditional activity of supplying precious metals and alloys for dental uses, as well as semi-finished products for the jewelry industry, was continued under the leadership of Heraeus Kulzer GmbH, representing 10 percent of 1989 turnover.

The restructuring of the group paid off in terms of profitability: pretax profits rose to DM 55.9 million in 1989, an increase of 23 percent over the previous year, and an increase of 51 percent over 1987. Of the sales made abroad, Europe was the group's most important market, accounting for 42 percent of foreign sales, followed by the United States (31 percent) and Asia (24 percent).

The new structure also paved the way for more targeted growth within each of the divisions. Substantial expansion took place in almost every division over the course of the 1990s. It began in 1992, when Heraeus Quarzglas established a facility for the production of synthetic quartz glass in the East German industrial town of Bitterfield. In the ensuing several years, the new facility's production was continuously expanded.

Also in 1992, Heraeus formed a new company--Heraeus Noblelight--to handle specialty lighting products. Noblelight developed, produced, and sold a range of infrared and ultraviolet lights that were used in production, industrial process technology, environmental protection, medicine, and cosmetics. Heraeus had been working in the field of lighting since the early 1900s, when it developed the first mercury high-pressure lamp. Until the formation of Noblelight, however, the lighting endeavors had been integrated into Heraeus Quarzglas.

Heraeus's Kulzer division positioned itself as a global leader in the dental technology market in 1995, when it acquired Bayer AG's global dental division. The acquisition made Kulzer the third largest dental company in the world.

Heraeus's Electro-Nite Division also saw significant expansion in the late 1990s. In 1997, the company established Heraeus Sensor-Nite, a German subsidiary that made and sold temperature sensors in platinum thin-film technology. This new direction substantially expanded Electro-Nite's market; whereas the company had originally produced immersion and gas sensors for the steel and aluminum industries, the new sensors were designed for use in the appliance, HVAC, electronics, automotive, and medical industries.

In May 1998, Heraeus Instruments merged with Sorvall Products, L.P., a U.S.-based maker of centrifuges, to form Kendro Laboratory Products. Under the terms of the merger, Heraeus retained ownership of approximately 40 percent of the new company's shares.

2000 and Beyond

The dawn of the new century ushered in a change in leadership at Heraeus. On January 1, 2000, Dr. Jürgen Heraeus resigned from his position as CEO and president and assumed instead chairmanship of the holding supervisory board. His replacement was Dr. Horst Heidsieck, who had previously been a member of the company's supervisory board and vice-chairman of its management board.

Heidsieck's tenure as Heraeus's leader was brief, however. In late 2002, the company announced that it was releasing him from his employment contract, at his request, so that he could pursue other opportunities.

The first years of the new century also marked two important milestones in Heraeus's existence. The first came in 2000, when the company posted record consolidated revenues of DM 8 billion (EUR 7.8 billion)--up a full 75 percent from the previous year's DM 4.6 billion. The second was the company's 150th anniversary, which it celebrated in 2001.

As Heraeus looked to the future, further expansion seemed likely. In 2001, the company spun off its division for making high-purity glass for the fiber-optic industry, forming a separate company called Heraeus Tenevo. According to company sources, the spinoff was designed to lay the foundation for a possible public offering of the new subsidiary. Such an offering could generate capital needed to fund a planned expansion in Heraeus Quarzglas's glassmaking capacity.

Principal Subsidiaries: W.C. Heraeus GmbH; Heraeus Kulzer GmbH; Heraeus Quarzglas GmbH; Heraeus Electro-Nite (Belgium); Heraeus Noblelight.

Principal Competitors: Engelhard Corporation; Johnson Matthey Public Limited Company; Spacelabs Medical, Inc.
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